What We Learned About the Wealth Management Industry Last Year

This article provides you with a flashback of the major touchpoints for the PFM/wealth management FinTech segment in 2015. Wealth management and PFM/personal money management solutions developed by the new-age FinTech have started to build scale. On the other hand, banks and financial services firms too have started to take note of this and have developed appropriate strategies to counter the threat.

Globally, there has been a trend of banks re-aligning their wealth management segments and focus. To a large extent, this trend was on account of regulations, associated costs and the new-age technology solutions. Banks have started to cater to wealth management/private banking services with a renewed focus. HSBC, Barclays and Wells Fargo are some of the major banks who have re-aligned segments to meet the goal of profitable and sustainable growth. Another key trend was that large banks and wealth management firms have started to strengthen specific geographic footprints, focusing to leverage only the firms’ stronghold areas. Ex.: Credit Suisse selling its US private banking arm to Wells Fargo.

Technology innovation also has been a major focus area for banks. Innovation labs, hackathons, accelerators and partnerships with startups have peaked. Also, banks have started to experiment with personalized solutions that leverage technology (from smart apps to robo-advisors). Ex.: Wells Fargo enhanced its Smart2Go application to connect advisors with consumers; Deutsche Bank launched its Maxblue robo-advisor; Charles Schwab launched Schwab Intelligent Portfolio (robo-advisory like service). Consumers demand for a continuous multichannel advisory solution, which has seen major acceptance in other banking services, could be the drivers for wealth management firms to upend their technology offerings.

On the other end, startups have come up with exciting solutions that can be easily managed and operated by customers. Also, as reported by us previously in our article The Lines That Divide FinTech Segment Are Blurring, we have discussed on how PFM services are becoming essential for wealth management firms.

A case in point is the acquisition Yodlee, a Financial data platform for banks and consumer (software solutions for personal finance and wealth management, risk management solutions for financial services industry) was acquired by Envestnet, Inc., a leading provider of unified wealth management technology and services to financial advisors.

We warmly welcome the Yodlee team to the Envestnet family. Yodlee’s pioneering data aggregation solutions greatly strengthen Envestnet’s broadly integrated wealth management platform and solve a mission-critical problem that advisors and their clients are facing today—efficient client onboarding and comprehensive planning over all of the client’s assets, said Jud Bergman, Chairman and Chief Executive Officer of Envestnet. Advisors seeking solutions that will enable them to serve and add value to their clients for their lifetime will find the combined Envestnet-Yodlee offerings to be compelling.

Robo-advisors, though a very small factor of the overall wealth management segment, are expected to grow 68% annually to reach an estimated $2.2 trillion in 2020 from an estimated $0.3 trillion in 2016.

Source: A.T. Kearney

Here are the drivers for robo-advisors:

- Lower account minimums: Wealth management firms require investors to have a minimum of $100,000 or more in investable assets. Robo-advisers have investment minimums in the low four-digit numbers.

- Lower fees: Robo-advisors are inexpensive. Traditional wealth management services charge 1% of assets under management or more; the typical fee charged by a robo-adviser is lower, depending on account size.

- Upgrading technology: The rapidly evolving technology not only crunches numbers but also assimilates, categorizes, analyzes and differentiates—making higher-level decisions; the emergence of mobile technology is the key for growth.

- Demographic advantage: Investors of all ages are using robo-advisors, but not surprisingly, they are especially popular among millennials and Generation Xers who grew up with technology.

Growth of Robo-advisor solutions has also paved way for increase in self-service channels in wealth management. There have also been trends that show that overall, advisory services are paving way for the self-service channel and hence are declining, however discretionary services are seeing a growth in overall AUM. Saxo bank, SPI Direct, Charles Schwab, and Vanguard are some of the players who launched self-service channels in the past couple of years.

(Click here to purchase a detailed report on robo advisors, and click here for a sector snapshot)

With the lines between FinTech blurring, in order to provide a comprehensive analysis of the different areas that wealth management could shift its focus to, LTP has also come up with a report focused on personal finance and money management market providing an overview of the recent trends in the US market. It also talks about the disruptions happening in the financial services across major segments, including banking, investment management and insurance.

Here are the major key functionalities and services offered by these companies in the personal finance and money management market:

– Income and spending analysis including cash flow

– Budget and goal setting

– Financial account aggregation

– Investment portfolio and

– Financial advice

According to the research done for the report, the total investments made in the four categories (mobile banking, personal finance, personal investing and wealth management) for years 2013 through 2015 is ~ $ 681.6 million.

(Click here to purchase the report on the strategic analysis of US personal finance & money management market)

With these pointers as a backdrop, we believe that 2016 could see further enhancement of services provided by wealth management firms. The market could see innovation with traditional wealth management firms building new products to cater to the overall needs of the wealth segment. As widely expected, robo-advisors have expanded the wealth management services segment, which traditional players would also start to target. Banks could leverage their existing partnerships/investments to enhance and improvise on customer acquisition and customer service.

Other major news:

Top 10 Wealth Management and Personal Investing Apps in the US

Don’t Rely Too Much on Robo-Advisors for Wealth Management

Online/Automated Wealth Management & PFM Startups to Watch in 2015

Wealthfront Reduces Minimum Account Opening Requirement to Just $500: Why It Matters

Let’s Talk More About Robo-Advisors

Can Robo-Advisors Give Better Advice than Humans?